Icely was first discovered by accident in 1842, by the esteemed explorer, Adam L. Icely when his ship crashed into an iceberg and sank several miles offshore. He drifted on a piece of wood for five days before landing on the island. He promptly passed out from dehydration and awoke later that night to find himself surrounded by strange creatures made of ice. These "creatures" introduced themselves as Frostbites and invited Icely to remain on their island for as long as he wished.

He returned home to Club Penguin several weeks later with many stories of his travels. Penguins were awestruck by his tales, and soon small expedition parties began venturing to the island in order to explore it further. Some of the penguins decided to remain on the island and a small village was constructed.

By 1850, many penguins had settled on the island and the government of Club Penguin decided to make it a part of the United Penguin Islands (UPI). It was named after the man who originally discovered it, and Icely's main settlement soon grew into a thriving metropolis.